Collective Defined Contribution (CDC) pensions could be available as soon as 2027, and a new paper from Aon suggests CDC could deliver around 30% better retirement outcomes than traditional DC lifestyling into an annuity, and up to 50% higher pension than an inflation-linked annuity when used at retirement.

CDC schemes effectively act as a hybrid—or “halfway house”—between traditional Defined Benefit (DB) and Defined Contribution (DC) pensions.

They pool both employer and employee contributions into a single collective fund and, rather than guaranteeing a specific payout or leaving members to manage their own pots, the fund is professionally invested to provide a target, lifelong income – without requiring complex financial decisions from members.

Their arrival has been awaited for some time – they were first explored in the UK as early as 2008. The UK’s first live CDC scheme, the Royal Mail Collective Pension Plan, launched in October 2024 and more schemes are expected to begin accepting contributions from 2027.

Now Aon has released “CDC – Everything you need to know in 2026” – a new paper that looks to the future at the potential this new type of pension scheme brings to the UK – and claim that delivery of the new style pensions is approaching a “pivotal moment”.

Aon’s modelling suggests CDC can deliver around 30% better retirement outcomes than traditional DC lifestyling into an annuity, and up to 50% higher pension than an inflation-linked annuity when used at retirement.

Building in resilience

Schemes should incorporate transparent benefit adjustment rules along with intergenerational fairness mechanisms, and Aon’s modelling suggest they will remain resilient across a range of adverse market conditions.

In fact, their modelling included the Great Depression, the 2008 financial crisis and the Covid-19 pandemic.

There should also be mechanisms in place for members to transfer existing DC pots into a CDC pension at retirement from 2028.

Chintan Gandhi, partner and head of Collective DC at Aon, said: “Aon’s research has shown that CDC pensions, for the same contribution level, could on average deliver around 30 percent better outcomes than a traditional defined contribution scheme lifestyling into an annuity at retirement – while also providing income levels at retirement that are smoother between generations of retirees.

“Whole-life CDC pensions provide a powerful tool to attract, reward, retain and retire employees on time, as well as strengthening organisations’ employee value proposition in competitive labour markets.

“We believe that CDC will revolutionise pensions in the UK, creating value for both employees and employers.”